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Exam 9: Break-Even Point and Cost-Volume-Profit Analysis

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Question 41

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Stewart Company The following information relates to financial projections of Stewart Company: Projected sales                                                        60,000 units Projected variable costs                                          $\$ 2.00$ per unit Projectedfixed costs                                                $\$ 50,000$ per year Projected unit sales price                                        $\$ 7.00$ Refer to Stewart Company.How many units would Stewart Company need to sell to earn a profit before taxes of $10,000?

A) 25,714
B) 10,000
C) 8,571
D) 12,000

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Question 42

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Dividing total fixed costs by the contribution margin ratio yields break-even point in units.

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Question 43

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Break-even analysis assumes over the relevant range that

On a CVP graph,the total fixed cost line parallels the x-axis.

Real Products Company Real Products Company produces and sells a single product.Information on its costs follow: $\begin{array}{l}\text { Variable costs: }\\\begin{array}{lr}\text { SG\&A } & \$ 2 \text { per unit } \\\text { Prochuction } & \$ 4 \text { per unit } \\\text { Fixed costs: } & \\\text { SG\&A } & \$ 12,000 \text { per year } \\\text { Prochuction } & \$ 15,000 \text { per year }\end{array}\end{array}$ Refer to Real Products Company.Assume Real Products Company produced and sold 5,000 units.At this level of activity,it produced a profit of $18,000.What was Real Products Company's sales price per unit?

In CVP analysis,sales and production are assumed to be equal.

A firm's break-even point in dollars can be found in one calculation using which of the following formulas?

Daybreak Corporation Daybreak Corporation manufactures and sells two products: A and B.The operating results of the company are as follows:                                               $\text {\underline{ Product A } }$ $\text {\underline{ Procluct B} }$ $\begin{array}{lll}\text { Sales in units } & 3,000 & 4,000 \\\text { Sales price per unit } & \$ 12 & \$ 7 \\\text { Variable costs per unit } & 6 & 4\end{array}$ In addition,the company incurred total fixed costs in the amount of $10,000.

The O'Brien Company sells two products,A and B,with contribution margin ratios of 40 and 30 percent and selling prices of $5 and $2.50 a unit.Fixed costs amount to $72,000 a month.Monthly sales average 30,000 units of product A and 40,000 units of product B. Required: a. Assuming that three unts of product $A$ are sold for every four unins of product $B$ , calculate the dollar sales volume necessary to break even. b. As part of its cost accounting routine, O'Brien Company assigns $\$ 36,000$ in fixed costs to each prochuct each month. Calculat the break-even dollar sales volume for each product. c. O'Brien Company is considering spending an additional $\$ 9,700$ a month on advertising, giving more emphasisto product $A$ andless emphasis to prochuct $\mathrm{B}$ . If its analysisis correct, sales of prochuct $\mathrm{A}$ will increase to 40,000 units a month, but sale of product B will fall to 32,000 units a month Recalculate the break-even sales volume, in dollars, at this new product mix. Should the proposal to spend the additional $\$ 9,700$ a month be accepted?

On a CVP graph,the total variable cost line intersects the y-axis at zero.

The formula for margin of safety is _____________.

A managerial preference for a very low degree of operating leverage might indicate that

Which of the following will decrease the break-even point? Decrease in                   Increase in                         directIncrease in $\text {\underline{ fixed cost} }$               $\text {\underline{ labor cost} }$                     $\text {\underline{ selling price} }$

After the break-even point is reached,each dollar of contribution margin is a dollar of before-tax profit.

Carson Company produces and sells two products: A and B in the ratio of 3A to 5B.Selling prices for A and B are,respectively,$1,200 and $240;respective variable costs are $480 and $160.The company's fixed costs are $1,800,000 per year. Compute the volume of sales in units of each product needed to: Required: a. break even. b. earn $800,000 of income before income taxes. c. earn $800,000 of income after income taxes, assuming a 30 percent tax rate. d. earn 12 percent on sales revenue in before-tax income. e. earn 12 percent on sales revenue in after-tax income, assuming a 30 percent tax rate.

Harris Manufacturing incurs annual fixed costs of $250,000 in producing and selling a single product.Estimated unit sales are 125,000.An after-tax income of $75,000 is desired by management.The company projects its income tax rate at 40 percent.What is the maximum amount that Harris can expend for variable costs per unit and still meet its profit objective if the sales price per unit is estimated at $6?

The margin of safety is an effective measure of risk for a company.

The contribution margin ratio always increases when the

____ focuses only on factors that change from one course of action to another.

Management is considering replacing an existing sales commission compensation plan with a fixed salary plan.If the change is adopted,the company's